Shareholder Rights Directive changes agreed

The text of a new EU directive—designed to strengthen shareholder engagement and increase transparency in listed companies in the EU/EEA—has been agreed by the EU Council and European Parliament.

The proposed directive will amend the existing Shareholder Rights Directive (Directive 2007/36/EC) in a number of areas including: giving shareholders the right to vote on the remuneration policy of the directors of their company; encouraging shareholder engagement, by allowing companies to identify their shareholders and get information on shareholder identity from any intermediary in the chain that holds the information; requiring intermediaries to facilitate the exercise of the rights by the shareholder, including the right to take part in and vote in general meetings; and requiring material related party transactions to be approved by the shareholders or the board of the company.

After final adoption of the new directive by the council and the European Parliament next year, member states will have up to two years to incorporate the new directive into domestic law.

Revised duty to report on payment practices and performance

New requirements for large UK companies and limited liability partnerships (LLPs) to publish information about their payment practices and performance are due to be introduced in April 2017.

The draft regulations are due to be brought in under section 3 of the Small Business, Enterprise and Employment Act 2015. They aim to increase transparency and public scrutiny of large businesses’ payment practices and give small business suppliers more information about who to trade with, how to negotiate fairer terms, and challenge late payments.

The new reporting rules will apply to companies and LLPs which meet two or more of the following criteria: turnover of more than £36m; a balance sheet total of more than £18m; and more than 250 employees. They will apply to business-to-business contracts for goods, services and intangible assets. Financial services contracts are excluded.

Every six months, businesses will have to publish information about their payment practices and performance on a government web service. Reports required will cover the organisation’s payment terms; its process for dispute resolution related to payment; statistics on the payment of invoices; whether it offers e-invoicing and supply chain finance; whether its practices and policies cover deducting sums from payments as a charge for remaining on a supplier’s list; and whether it is a member of a payment code.

A director will have to approve the information. Failure to publish a report will be a criminal offence, with the company and directors liable to a fine on conviction. All directors will be liable, unless they can show they took all reasonable steps to ensure the requirement would be met. Equivalent rules will apply to LLPs and their designated members.

FRC requests extra corporate governance powers

The Financial Reporting Council (FRC) wants to extend the scope of its disciplinary powers beyond auditors, accountants and actuaries to all directors of listed and larger private companies, it has been revealed.

Recommendations on corporate governance and what additional enforcement powers the FRC wants were set out in a letter to the House of Commons’ Business, Energy and Industrial Strategy Committee by FRC chief executive, Stephen Haddrill.

Explaining that it is impossible under the current regime to hold directors to account—even where the evidence suggests they are guilty of a breach of regulations—Haddrill requests a new code of conduct for directors, which supplements the duties outlined in the Companies Act and also covers ethical standards, and which would be enforced by the FRC.

Alternatively, he suggests, the directors’ disqualification regime, presently administered by the Insolvency Service, could be extended to other regulators—including the FRC. Both sets of recommendations would require law changes.

The FRC also wants regulatory backing for its proposed governance code for large private companies, to ensure it is compulsory and that businesses affected will have to report publicly on their compliance. The regulator also wants to extend its monitoring powers to cover the parts of annual reports it is not presently responsible for.

“We have powers to monitor the company’s strategic report and financial statements but not other parts of the report, which often contain crucial governance information,” Haddrill says. “The FRC should have powers to secure information to enable us to test effectively the quality of governance information and, particularly, companies’ explanations for non-compliance with the code and to take action as well.”

Survey: companies are sinking in risk

Global companies are opening themselves up to greater risk—including bribery and corruption and modern-day slavery—by conducting due diligence on just 62% of their suppliers, distributors, and third-party relationships, according to a recent survey.

Thomson Reuters 2016 Global Third Party Risk Survey showed that only 36% of companies fully monitored the ongoing risks, and 61% did not even know the extent to which third parties are outsourcing their work.

The survey of more than 1,000 global third-party relationship/risk management/compliance professionals at organisations in North America, South America, Europe, Asia and Australasia found that 66% knew where risks may arise, but struggle to employ processes to detect them. Some 77% expect more time and resources being required to conduct adequate due diligence on third parties over the coming year.

Sixty-five per cent believed the current economic climate is encouraging organisations to take risks with regard to regulations to win new business, but just over half thought they are unlikely to be prosecuted if they did breach regulations—even in countries with the strictest, such as the US and the UK (61% and 56% respectively).

“Despite recent large fines for breaching regulations, we were surprised that 63% of respondents agreed that winning new business is a priority and as a consequence might breach regulations. This demonstrates the immense pressure organisations are under,” says Shaun Sibley, managing director, Supply Chain and Commodities, Thomson Reuters.